Factory output slumps in Japan, S Korea

City A.M. Reporter
FACTORIES in Japan and South Korea cut output in October, adding to evidence of an Asia-wide slowdown.

Japanese companies cut production for the fifth month and by the biggest margin since February 2009, while South Korea's industrial output fell for the third month in a row, disappointing markets which had bet on a rebound.

In contrast, India asserted itself as a regional standout, reporting that its economy grew 8.9 per cent in the past quarter from a year earlier, beating market forecasts.

The fall in Japan's output was expected – in fact a drop of 1.8 per cent was smaller than the forecast 3.3 per cent decline – after a key stimulus measure, incentives for buyers of fuel-efficient cars, expired in September, and exports continued to cool.

The drop, however, cemented expectations that the world's third-largest economy after the United States and China would contract in the final quarter of the year after a stimulus-driven spurt in the third quarter.

South Korea, among the first economies to regain cruising speed after the global recession, is also losing steam.

The surprising 4.2 per cent drop in output in October from September convinced analysts that the central bank there will keep rates on hold in December after a rise this month.

But economists and businesses were more upbeat about the outlook than their Japanese peers and Seoul is still betting on solid export growth next year.

"The inventory rebuilding cycle after the recession has come to an end, and what we're left with is final domestic demand, which isn't doing that well across the globe," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.

The numbers follow reports from across Asia that showed most economies were losing traction in the third quarter faster than thought as the initial spurt of foreign demand late last year and early in 2010 waned.